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China in the Global Economy

Edited by P. J. Lloyd and Xiao-guang Zhang

China in the Global Economy focuses on the theme of twin transitions occurring in the Chinese economy: the transition from a centrally planned economic system to a market oriented one, and from an agrarian to a modern industrialised society. China’s exporters face unprecedented competition in the world market and the flow of foreign direct investment has fallen restraining the growth of the domestic economy. These new challenges have fuelled debate on the perspective of the Chinese economy and its role in the global economy.
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Chapter 4: Savings functions for a multi-sector CGE model of the Chinese economy

Mei Wen and Peter Lloyd


Mei Wen and Peter Lloyd INTRODUCTION Savings provide resources for financing fixed capital formation. A high savings rate is considered a necessary condition for rapid economic growth. This paper constructs savings functions for China as part of the modelling of China’s economy in a multi-sector CGE model. Savings in any economy are sourced from four sectors: the household, government, business enterprise and foreign sectors. National savings are, therefore, the sum of savings from each sector: S = S H + SG + S E + S F (4.1) Foreign savings are equal to the deficit on the current account of the balance of payments. Sometimes it is more convenient to express savings as a rate. Dividing by GDP, Y, the national savings rate can be expressed as s ≡ S/Y = w H s H + wGsG + w E s E + S F / Y. (4.2) That is, the national savings rate is the weighted average of the domestic savings rate of the sectors, with the weights being their respective shares of national income, plus the ratio of foreign savings to GDP. As foreign savings are small in China, this section examines domestic savings. Table 4.1 shows the domestic savings rate, that is, total domestic savings as a percentage of gross domestic product (GDP), for China, the OECD members, East Asia and the Pacific, Japan and Korea. Figures in the table are five-year averages for the period 1960–94. These are calculated from data on yearly domestic savings rates...

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